Rootstock Labs Says DeFi Liquidity Drop Is Pushing Bitcoin DeFi Toward Institutions, Long-Term Holders

Rootstock Labs, the investment arm of Bitcoin layer-2 project Rootstock, says the recent downturn in decentralized finance is reshaping the core customer base for Bitcoin DeFi projects.

Richard Green, director of institutional and ecosystem at Rootstock Labs, told The Block in an interview published June 16 that activity among crypto-focused traders and hedge funds has fallen sharply as capital leaves the DeFi market. Those groups had been key users of Bitcoin DeFi products.

The DeFi market is in a slump because of a broad pullback in liquidity, Green said. In response, Bitcoin DeFi projects are focusing less on serving all users and more on groups with clear demand, including institutional investors, long-term Bitcoin holders and strategy-specific operators.

While the overall market has shrunk, some segments still have sufficient liquidity and demand, he added.

Data from The Block show total value locked, or TVL, in DeFi protocols has fallen to about $70 billion from about $180 billion in October last year.

As the decline in DeFi liquidity drags on, the market view is that projects are restructuring their business models to strengthen revenue streams centered on institutions and high-net-worth investors rather than broad expansion to retail users.